China stock exchanges mandate Sustainability Report for larger listed entities

On 12 April 2024, Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE) and Beijing Stock Exchange (BSE) issued self-regulatory guidance documents – Sustainability Report (Trial) (referred to as “Guidelines”) – respectively, which will be effective 1 May 2024. These guidelines aim to integrate the concept of sustainable development into companies' business strategies and operational activities.

As an overarching principle, the Guidelines takes a double materiality approach on sustainability disclosure topics. It requires entities to identify whether each topic is expected to have a major impact on its business model, operations, development strategy, financial position, operating results, cash flows, financing methods and costs over the short, medium and long term (financial materiality); and whether an entity’s performance in that topical area has a material impact on the economy, society and environment (impact materiality). 

The Guidelines emphasise the importance of addressing environmental concerns, fulfilling social responsibilities, and improving corporate governance. The topics include climate change, pollution control and ecosystem protection, rural revitalisation, ethics of science and technology, along with a differentiated disclosure approach across the topics. Entities are also encouraged to disclose actions and measures taken to strengthen supply chain management, promote sustainable development, and ensure equal treatment of small and medium-sized enterprises. Information on product and service safety, data security, customer privacy protection, and employee-related matters are also included amongst the disclosure topics.

These guidelines are largely aligned with international standards (ISSB’s IFRS Sustainability Disclosure Standards and GRI Standards), which help reduce the cost of preparation of sustainability-related disclosures for companies that are subject to various disclosure regimes.